some thoughts on governance & how to handle token unlocks, and preventing founders to rug this article has two base assumptions (a) cooperate democracy is naive (b) token<>equity has to be aligned (ERC-S) why is this even important? by giving power to token holders, you minimize the potential of "bad actions" (rug pulls, unnecessary treasury spending, insider cashing out without building the product). enforcement & accountability are the reason that stops bad actors and aligns token value creation with growth of the company. the issue I see here is that governance shouldn't be streamed 1:1 down -> up, where every decision comes from the the token holders and no ultimate veto power is given to the founders. There has to be a middle ground where you, as a founder, are still able to put your opinion across as hard as possible (even if it doesn't align with what most holders think). This dictatorship style is actually very common in private companies & discontinuing it would be very inefficient. The founder should have the ultimate power. But this leaves us at square1, how do we stop bad actors from doing bad things? Current solution crypto has: (01) The fake democracy dictatorship by voting power DAO vote: Should we unlock 10% of founder allocation? 95% No ------ 5% Yes 1d later: *Founder & Insiders disagree, and vote with their tokens 40% NO ------ 60% Yes (02) I think Futarchy is great, but it's still not a flawless concept especially if there are outside incentivizes. I find Futarchy especially hard to implement for ERC-S where there are more offline actions, larger offchain treasuries & harder to track revenue (etc) metrics. Think of following scenario. There’s a vote: Keep the CEO or Fire the CEO. The CEO makes $20M/yr if she stays. That’s a huge outside reward not tied to the market itself. Two Markets: PASS (what price would be if we keep her) FAIL (what price would be if we fire her) If the final rule says “PASS wins if the average PASS price is higher than the FAIL price by X%,” the CEO can try to push PASS up (or push FAIL down) during the decision window. And that's a +EV trade. Futarchy kinda relies on other traders having enough capital and stamina to push back for the whole window. By splitting the orders of a manipulator into 50% PASS buys + 50% FAIL sells, you actually end up even more capital efficient when the sell market cancels trades. I do believe that Futarchy is especially good for crypto-native protocols, but as soon as we go into ERC-S, where there are final DAO decisions which decide on distribution of a M&A proceed, where it could be billion of $ on the line. For gradual treasury unlocks futarchy seems like the best decision, because no-one will start to try to manipulate a $50K settle market. ---------------- SALE OF TOKENS ----------------- ERC-S is designed to be valuable. The team will have more incentives&value buying back the token over selling the token. If the startup is successful the supply will ultimately reduce itself from 100% unlocked to ˜20% or less unlocked by design. Founders want to accrue token back so they don't get diluted later by (the chance of) the equity proceeds distribution in case of an M&A event. Successful startups will have an aggressive deflationary curve. There should always be the possibility to sell these valuable tokens OTC or on the market though, to fund external acquisitions. So the question this text kinda led up to eclipses here: "How do you ensure that future acquisitions/b&d funded by OTC/market sales of the token are done fairly with the token holders consent/knowledge without giving too much power away into a naive governance structure which might just decline it, bc muh short term price action?" I argue that the simplest way of implementing this is by giving sales notices, similar to how it works in the stock market. Every token the team accruals either through volume fees or strategic buybacks should be locked in a multisig wallet between Street <> Startup (or even in an automated smart contract), these tokens are always free-ly accessible, you can request ALL of your tokens to be freed at any time you want, but there's always a 7d delay between request and release. At the moment of release you have to convince holders what you're doing with these funds, why you need them and explain your case. This system ensures that the power is completely at the startup to free up as many tokens as possible, but these tokens might be worth less at the moment they actually get freed up if the case isn't strong enough. Since all ERC-S founders have to be doxxed and their company has to be set up in the US, putting out fake investor promises is illegal. Now the market is a weighing machine, how much do they trust you and do they think this proposal is good. "But now the holders only have price to fight back". Yes, exactly. The proposal will never be signed off by a single person, any proposal will go through a board of directors & advisors. Since a ERC-S token also has equity involved it's a quasi-representation of the real business behind it. All of this kinda lead into one conclusion: A bad company shouldn't be an alive company. And this is something crypto struggled for a long time, actually we have a own word for this: slow rug. Ever wondered why top1000 crypto companies refuse to die, why most of the lowest tier companies are still somewhat active? It's because these slow gradual unlock schedules give the founders a lot of incentives to live longer and to create this false hope in holders that one day they can turn this ship around. Allow founders to withdraw large chunks and the market will price in fear and not in complacency and in habit. Think about it this way, what would get more traction on X and would get more reaction in the chart (a) STRK founders unlock 50% locked tokens over next year. (b) STRK founder unlock 50% tomorrow. It's good that holders only have the price to fight back because it's the most natural thing in a company & the thing with the most leverage. If your founders are misaligned with creating token holder value, then the company should die out, and you should treat the token as dead. -------------------------------------------------------- opCo decision making process especially in the early stage should not be influenced at all by tokenholder governance. I think it's a very inefficient solution to include token holders in decision making especially in startup / midcap stage. I think we shouldn't reinvent the wheel for ERC-S, and since ERC-S should feel like equity/share grade ownership having these sales notices over governance decisions feels right. Anyways cool things ahead, been meeting with people i would have never thought ill ever talk to in the last week. ERC-S volume will be higher than ERC-20 volume by 2027.

s/o to MetaDao, I think they will be the standard ICO structure for web3 native protocols